How To Fund Your Business Expansion Or Startup

The best business funding for your business is based on a number of factors, including how funds will be spent, the amount you need to borrow, and your credit profile.

Personal Loans

New businesses and startups face difficulties when applying for a business loan. After all, lenders have no idea whether you can run a profitable company.

However, if you have a good personal credit history, you may be able to get a personal loan for business. This can also be a viable strategy if your personal credit history looks better than that of your business.

Personal loans that can be used for business often have longer repayment terms than an equivalent business loan but also lower borrowing amounts. This makes them generally better suited for launching a small-scale business than one that requires a large capital infusion to get started.

Business Grants

Small business grants are awards given to companies that meet a specific set of qualifications. These can range from being in a particular area or being in a particular industry to addressing a particular problem.

While grants do not have to be repaid, just be aware that applying for a grant can be a very competitive and time-consuming process.

Crowdfunding

Another way to get capital for your small business is through crowdfunding. By running a successful crowdfunding campaign, an entrepreneur can fund their business through microdonations.

This process doesn’t involve acquiring any debt, but you may have to offer awards or equity in your company to your donors. Additionally, there is often a fee for using the platform. Finally, be aware that some platforms will require you to meet your campaign goals to receive funding.

Invoice Factoring

Invoice factoring is financing that frees up cash from outstanding invoices. An invoice company (or factor) purchases your unpaid invoices at a discount, giving you access to capital now without waiting on slow-paying customers.

Invoice factoring is appropriate for businesses that frequently have unpaid invoices and have cash flow problems as a result. Unlike other types of funding, bad credit isn’t typically a concern, as factors are more concerned with your customer’s ability to pay.

Invoice Financing

The two terms sound alike, but invoice financing is not the same as invoice factoring. With invoice financing, the financing company grants you a line of credit, using your unpaid invoices as collateral.

Invoice financing is a smart solution for businesses with unpaid invoices that don’t necessarily need immediate cash. Invoice financing also typically has lower fees than invoice factoring.

Business Credit Cards

Business credit cards can also be a source of funding. Credit cards function like short-term, high-interest revolving lines of credit that can be conveniently used at point of sale. Additionally, many credit cards offer reward programs that can actually save you money if used wisely.

However, approach using credit cards with caution. Because they carry high interest rates, credit cards should not be used for expenses that can’t be paid off within their monthly interest-free grace period.

Do I Need To Get Funding For A Business?

Before you go into debt, commit to a crowdfunding campaign, or start a grant application, you should ask yourself:

• Can I handle the work required of my business on my own?
• Can I start my business without quitting my day job?
• Can I deliver my product or service without a physical retail location?
• Can I squeeze a few more months or years out of my existing equipment?
• Can I eliminate products or services that are losing money?
• Can I reduce costs without sacrificing quality?
• Can I minimize overhead by using free or pay-as-you-go services?
• If I do need help, can I get a partner to share in the sweat equity?

Every “yes” can reduce your reliance on business funding. If you’re ready to look for a loan, however, check out our picks for best small business loans.